Planning & Monitoring

Home Services FAQ Site Map Contact Us
Articles by Alvin Brown
Tax Preparation
Offer In Compromise
State Offers in Compromise
Levy
IRS Tax Liens
IRS Tax Liens - continued
IRS Tax Liens - continued 2
Levy - continued
Audit Techniques Guide
Congressional Contacts
Criminal Investigation
D.O.J Criminal Tax Manual
Tax Litigation
Penalty
Installment Agreements
Statute of Limitations
Frivolous Tax Argument
Interest Abatement
IRS Misconduct
IRS Abuses
Tax Fraud
Fraud Statutes
Bankruptcy
Tax Reform Legislation
Tax Shelters
Tax Court
Trust Fund Penalty
Legislation
Innocent Spouse Relief
Important Links

Overview & Responsibilities
Pre-Contact Responsibilities
Pre-Contact Resp. Cont.
Examination Techniques
Examination Techniques Cont.
Examination of Income
Examination of Income Cont.
Required Filing Checks
Penalty Consideration
Issue Resolution
Report Writing
Report Writing Cont.1
Report Writing Cont.2
Planning & Monitoring
Determining Return Need
Source of Returns
Classification
Classification cont.
Assignment
Partnership page 1
Partnership Page2
Executive Compensation
Golden Parachute Audit
Split Dollar Life Insurance
Straddles

 
Planning & Monitoring

Back Next

4.1.1  Planning and Monitoring

4.1.1.1  (05-19-1999)
Overview

  1. This chapter addresses the planning and monitoring of the inventory of tax returns for examination.
  2. Policy statement P–4–21 states "The primary objective in selecting returns for examination is to promote the highest degree of voluntary compliance on the part of taxpayers." This section provides uniform procedures for planning and monitoring the inventory of tax returns for examination. Uniform procedures enable Headquarters and Area Office, and Service/Customer Service Center program analysts to evaluate the program.

4.1.1.2  (05-19-1999)
Examination Plan

  1. The National SB/SE Examination Plan is based on long range coverage objectives and on resources requested in the Congressional Budget. From the approved National SB/SE Plan, staff years are allocated to Areas and Service/Customer Service Centers using a resource allocation methodology. Planning and Special Programs Support Manager (PSP) is responsible for preparing the area response to the draft examination plan following the instructions in the area user’s guide and cover memoranda from National Headquarters.

4.1.1.2.1  (05-19-1999)
Staffing Allocation Methodology

  1. The staffing allocation methodology SB/SE uses to prepare the examination plan considers the following factors:
    • Front loaded programs
    • Marginal yield from examinations
    • Historic examination rates adjusted by an improvement factor
    • Current onboard staffing in districts
    • Anticipated attrition

     

4.1.1.2.2  (05-19-1999)
Front Loaded Programs

  1. Front loaded programs are those activities that National Headquarters has determined are of such importance that time must be allocated to them before resources are committed to other activities. PSP Support Manager, will discuss the front loaded time with the area and territory program managers to ensure the plan response shows the correct time. Examples of front loaded programs are:
    • Estate and gift tax
    • Excise tax
    • Taxpayer Compliance Measurement Program
    • Title 31 Compliance

     

4.1.1.2.3  (05-19-1999)
Area Responses

  1. In preparing the area response, PSP will:
    1. Adjust plan bottom-line staffing to the final figure.
    2. Verify front-loaded program time.
    3. Input training time. The training plan is prepared by theSBSE Training Coordinator.
    4. Evaluate and adjust, if necessary, time allocated to front loaded time, such as employment, excise, estate and gift, and non-examination time. PSP should consider work in process, time applied in prior years, results of prior audits, and the availability of returns.
    5. Allocate difference between plan time and bottom-line staffing to individual returns and corporate activity code 203–217 returns. The program includes a menu item to perform this allocation automatically.
    6. Prepare comments on changes to the examination plan.

     

4.1.1.2.4  (05-19-1999)
Training Return Plan

  1. The revenue agent and tax auditor examination plans each include a line for training returns. PSP Support Manager, will prepare a training return plan showing the number of returns to be examined by trainees. The plan should show the training phase, number of agents/auditors, activity code(s), number of returns, rates, and Direct Examination Staff Years (DESY) to be applied. The training return plan is used to plan return orders. A copy should be sent to National Headquarters with the area response to the draft examination plan.

4.1.1.2.5  (05-19-1999)
Return Plan

  1. The return plan is created by selecting the appropriate menu item in the exam plan program. It is used to develop the classification plan and to calculate the DIF cutoff scores.

4.1.1.2.6  (05-19-1999)
Classification Plan

  1. A classification plan will be prepared using the area response to the draft examination plan. When the final plan is received, the classification plan will be updated for use for the remainder of the year. The classification plan will be used to plan DIF return orders, schedule agents and auditors for classification details, and establish goals for identification of non-DIF returns. PSP Support Manager will provide a copy of the classification plan to the PSP Territory Support Manager and the Service/Customer Service Center Chief. Classification Section. At minimum, the classification plan will include:
    • Number of DIF returns needed by activity code
    • Number of non-DIF returns needed by activity code
    • Select rates by activity code
    • Percent of DIF returns by activity code
    • Projected return orders by cycle for each activity code

     

  2. PSP Support Manager will monitor the classification plan to ensure:
    1. Returns are ordered ratably throughout the plan year.
    2. Returns are ordered timely in the correct activity codes.
    3. Returns are delivered to classification timely and that the delivery rate is adequate.
    4. Classification is being done timely.
    5. Select rates are within acceptable levels
    6. Returns are falling out in the correct posts of duty and are split properly between office audit and field audit cases.
    7. Unassigned inventory levels are neither too low nor too high.

     

  3. The following Figure 4.1.1–1 is a sample classification plan.

     

    Figure 4.1.1-1
    This image is too large to be displayed in the current screen. Please click the link to view the image.

     

    Figure 4.1.1-1
    This image is too large to be displayed in the current screen. Please click the link to view the image.

4.1.1.3  (05-19-1999)
Minimum DIF Cutoff Score

  1. Each year, National Headquarters Examination establishes a National SB/SE DIF cutoff score for returns added to the DIF inventory. Returns with a DIF score higher than the minimum are added to the DIF inventory and may be ordered for classification.

4.1.1.3.1  (05-19-1999)
DIF Cutoff Score

  1. The PSP will convert the exam plan to a return plan and calculate the area DIF cutoff score for each activity code, giving consideration to the selection rate. This is the lowest DIF score necessary to secure the number of returns required for audit. For example, if the return plan shows 225 returns for an activity code and the selection rate is 70%, and the inventory report is as shown below, the district will need to order 321 returns (225/75%). The DIF Cutoff Score is 500. The number of returns with DIF scores greater than 550 is 280, which is less than the number of returns required, so the lowest DIF score on an ordered return will be in the range of 500 to 550 and the DIF cutoff score is 500.

    Example:

    Inventory Report

     

      Returns Cumulative Returns
    650 & UP 20 20
    600 50 70
    575 100 170
    550 110 280
    500 300 580
    450 350 930

     

4.1.1.3.2  (05-19-1999)
Use of DIF Cutoff Score for Return Orders

  1. The PSP Support Manager should monitor the inventory reports to ensure that area-wide return orders do not result in the delivery of returns that are below the DIF cutoff score.
  2. For a POD Supplemental Order, the PSP may order returns below the DIF cutoff score provided the total ordered does not exceed 110% of the returns above the cutoff score, i.e., not more than 10% of the returns ordered for any POD should be below the DIF cutoff score.
  3. Every available means to supply workload above the cutoff score in each activity code will be exhausted before a request is submitted to order returns below the cutoff score. For example, for a POD, if the geographical area permits, select returns from excess workload of a contiguous POD within the area.

4.1.1.4  (05-19-1999)
Grade Structure Analysis

  1. The necessary grade levels of revenue agents needed to accomplish an area’s examination plan are determined by applying the "percentage by grade" (obtained from Table 37) for GS–13, GS–12, GS–11 and below, and GM–13–15 managers to each line item in the examination plan. The PSP Support Manager in each area will perform a grade structure analysis, at least annually, in conjunction with a workload study and/or development of the final examination plan.
  2. Spreadsheets are developed in Microsoft Excel. This application is displayed in Exhibit 4.1.1–1. The spreadsheets are available for the National Headquarters PSP Ananlysts.
  3. The percentages by grade of agent to be applied to planned staff years for all items of direct examination time involving the closure of tax returns (except CEP) are obtained from the National Headquarters SB/SE summary AIMS Table 37 for the most recently completed fiscal year.
  4. The computerized application of the grade structure formula requires entries on the spreadsheet for the area’s final Examination plan and for "percentage by grade" information for GS–13 and GS–12 positions for each class of individual and corporate returns and for the following line items:
    • fiduciary
    • estate
    • gift
    • employment
    • Form 1042
    • excise
    • windfall profit
    • partnership
    • sub-chapter S
    • training returns

     

  5. Percentages for GS–11 and below are not entered in the grade structure computation but, rather, are computed in the program based on 100% less the percentages entered for GS–13’s and GS–12’s.
  6. Several classes of returns, i.e., 1120–F, estate, and excise are reflected as multiple line items in the Examination plan, but are reported as a single line item on Table 37. Enter the GS–13 and GS–12 percentages on the "total" line summarizing these types of return classes in the grade structure computation.

4.1.1.5  (05-19-1999)
Workload Study

  1. PSP Support Manager will conduct a workload study to determine the optimum placement of revenue agents and tax auditor/TCOs by post of duty and grade. At minimum, the workload study will be conducted annually using the final examination plan, although it may be done more often to determine the placement of new hiring and promotions.
  2. A computer program is available which automates most steps of the workload study. Before beginning the workload study, PSPSupport Manager should check with the National Headquarters for the most current version.

4.1.1.5.1  (05-19-1999)
Steps in Conducting the Workload Study

  1. Determine the examination plan to use for the workload study. Usually, it will be the final exam plan, however, modifications to the plan may be required if the study is being performed in anticipation of hiring for the next fiscal year.
  2. Convert the exam plan to a return plan. Direct Examination Staff Years (DESYs) will be allocated to posts-of-duty based on the number of returns to be audited at each POD.
  3. Determine the method of allocating DESYs to PODs for every line of the exam plan. For DIF returns, the allocation will be based on the fallout of returns by applying the DIF cutoff score for each activity code to the combined inventory and delivery tables for each POD. For non-DIF returns, the allocation should be based on percentage of return filings by POD or some other method which accurately reflects the anticipated fallout.
  4. For non-return lines of the examination plan, the allocation will be based on one of the following methods as appropriate:
    1. Manual determination of returns worked by POD (e.g., project cases where the fallout is known).
    2. Manual determination of DESY’s required by POD (e.g., CEP, group management, or activities where the fallout is known).
    3. Percentage of staffing by POD (e.g., leave and administrative time where the fallout is proportionate to the staffing).

     

  5. Calculate fallout of DESYs by POD. DIF inventory and delivery tables for each POD are entered into the program to calculate the return fallout based on the DIF cutoff score. Non-DIF returns and non-return DESYs are allocated by the program using the allocation method selected in the preceding step.
  6. Convert the fallout of returns by POD to DESYs by multiplying the returns by plan hours and dividing by the number of hours in a staff year, usually 2,000. This is handled automatically by the computer program.
  7. Prepare summary reports for each staffed POD showing the calculated staffing for each line of the exam plan and the DESYs by grade level. The DESYs by grade level is calculated by multiplying the total DESYs by the percentage at each grade level as computed in the grade structure analysis. (See section 1.4 above.)
  8. For each grade and POD, determine the difference between the actual onboard staffing and staffing calculated by the workload study. Prepare a summary report for the entire area.
  9. Prepare an executive summary containing your analysis of the workload study. It should:
    1. State which examination plan is used as the basis for the study.
    2. State which plan lines involving returns, if any, were allocated to PODs based on actual staffing.
    3. State how recent the information is for actual staffing by POD.
    4. Highlight significant discrepancies between actual staffing and calculated staffing.

     

4.1.1.6  (05-19-1999)
PSP Responsibility

  1. The PSP Support Manager has the responsibility to assess program effectiveness. The PSP Support Manager must be familiar with the Business Plan because the timing and type of returns entered into the audit stream determine whether the area achieves its goals.
  1. The PSP Support Manager is responsible for monitoring the accomplishment of examination goals and providing timely reports to area, territory and group managers to assist in the management of their operations. Much of this information is available on Tables 36 and 37, and also on the AIMS Open/Closed Case DataBase. The PSP often needs to monitor programs and projects that are not reflected in the standard reports. In other situations, there may be a need to present the data in a more user-friendly format or to provide return listings.
  2. The PSP may develop new tracking systems using AIMS open and closed case databases provided by National Headquarters using ERCS (Examination Returns Control System). Before doing so, however, check with the National Headquarters and the ACIS Analyst to determine if a program already exists. PSPs are encouraged to share their programs and monitoring tools through the PSP Territory Manager.
  3. At minimum, the PSP should monitor the following for classification:
    • Delivery of returns for classification (Tables 1040–2, 1041–2, 1065–2, 1120–2, 1120–3)
    • Select rates (Campus Classification Report)
    • Survey rates before and after assignment and survey of excess inventory (Table 37)
    • Volume and timing of return orders (Classification Plan)

     

  4. At minimum, the PSP should monitor the following for cycle time:
    • Average cycle time for closed cases (ACIS)
    • Average days in process for open cases (ACIS)

     

  5. At minimum, the PSP should monitor the following for inventory:
    • Started returns by status code (Tables 36 and 37)
    • Unstarted returns by status code (Tables 36 and 37)
    • AIMS Open Case DataBase

     

  6. At minimum, the PSP should monitor the following for results:
    • Dollars per hour by activity code (Tables 36 and 37)
    • Dollars per return by activity code (Tables 36 and 37)
    • Return accomplishments (Tables 36 and 37)
    • Time applied by examination class (Table 37)
    • Table 10.1B Assessments Over $100,000

     

  7. There should be no comparison with data outside area results. This data should be used for allocation of resources, workload selection and for assessment of program effectiveness. You must stay within the operating guidelines outlined in IRM 1.5.2, Managing Statistics Handbook.

4.1.1.7.1  (05-19-1999)
Classification Monitoring

  1. To monitor the delivery of returns for classification and the volume and timing of return orders, the PSP should maintain a spreadsheet showing the date, cycle, and volume of return orders. When orders are posted to master file, the ordered returns will move from the inventory section to the delivery section of the tables. The returns will appear in the Inventory/Aging By Class section of Table 37 when the returns are delivered to classification.
  2. SB/SE Campus section will provide monthly DIF classification reports to the PSP Support Managers within five days after the close of the month where there is activity. The reports will capture classification results by class and by area.
  3. Selection rates for all DIF ordered returns will be the maximum rates possible. If select rates are less than 50% for any class, the PSP Support Manager will analyze a sample of the accepted returns and review local instructions to determine the reason for the low selection rates.
  4. Area should notify the PSP Territory Manager when selection rates are below 50%, and the reason for the low selection rate.
  5. Managers should monitor the volume of the surveys and take the necessary steps to reduce incorrect surveys and/or the number of returns without audit potential entering the examination stream. Using a statistical sample representing no less than 5% of surveyed returns (Disposal Code 31 and 32), the PSP Support Manager will conduct reviews to determine the appropriateness of returns surveys. Inappropriate returns surveyed should be returned to the group manager or territory manager, as necessary.

4.1.1.7.2  (05-19-1999)
Cycle Time Monitoring

  1. Examination and disposition of income tax returns will be completed within 26 months (individuals) and 27 months (corporations) after the due date of the return or the date filed whichever is later. Maximum adherence to these guidelines is essential. Exceptions for cases are listed in IRM 4.10.2, Examination of Returns Handbook.
  2. Average days in process for open cases and closed case cycle time can be monitored using AIMS open and closed case databases.

4.1.1.7.3  (05-19-1999)
Inventory Monitoring

  1. Started and unstarted returns by status code are shown in the Inventory/Aging Sections of Table 36 (area, territory, and group levels) and Table 37 (area level). The PSP should determine whether there are adequate returns on hand to accomplish the examination plan. This should include an analysis of time applied, work in process by class, turnover rates, and base inventory.
  2. Selected, Not Assigned inventories (Status 08) should be maintained at minimum levels. As a general rule, the inventory should not exceed the return needs for 3 to 4 months.
  3. Assigned, No Time Applied inventories (Status 10) should be kept to a minimum to allow for a quicker change of direction to meet program needs.

4.1.1.7.4  (05-19-1999)
Results Monitoring

  1. Dollars per hour, dollars per return, return accomplishments and time applied are monitored using Table 37. Table 37 also provides an analysis of the results and inventory by project code.
  2. The PSP should closely monitor Table 10.1B on a monthly basis to ensure that duplications are eliminated and corrections are made promptly.

4.1.1.8  (05-19-1999)
ZIP/POD Tables

  1. Examination inventory is assigned to area offices based on ZIP codes using the ZIP/POD Lookup Table at Martinsburg Computing Center. Returns filed with a ZIP Code that is not on the ZIP/POD lookup table will post to POD 99.

4.1.1.8.1  (05-19-1999)
High Assault Risk Areas (HARA)

  1. Certain ZIP code areas are identified as High Assault Risk Areas (HARA). If a POD serves both HARA and non-HARA ZIP codes, it will be assigned two POD codes. For example, POD Anytown (now POD XX) has 4 HARA and 6 non-HARA ZIP codes. POD Anytown would be assigned a POD code for the 4 HARA ZIP codes and POD XX for the 6 non-HARA ZIP codes it serves.

4.1.1.8.2  (05-19-1999)
Updating ZIP/POD Tables

  1. Separate Individual Master File (IMF) and Business Master File (BMF) ZIP/POD listings are produced annually from the lookup table and distributed to Area offices for updating. The validity of these lists must be maintained to accurately identify examination workload by geographic areas. The PSP Support Manager is responsible for correcting those ZIP Codes which appear in POD 99. If the ZIP Codes are valid, they should be incorporated into regular POD’s.
  2. When the ZIP/POD tables are updated the PSP Support Manager can:
    • Add or delete posts of duty
    • Add or delete ZIP codes
    • Change post of duty names
    • Move ZIP codes from one POD to another

     

  3. Specific instructions for updating the ZIP/POD files are provided by National Headquarters annually.

4.1.1.8.3  (05-19-1999)
POD 99

  1. After Cycle 52, the current file year Inventory and Delivery reports for all individual and corporate returns will be reviewed. For example, the Inventory and Delivery report for file year 1997 will be reviewed after 12/31/97. Any high DIF scored returns remaining in POD 99 should be ordered for classification.

[ Home ] [ Services ] [ FAQ ] [ Site Map ] [ Contact Us ]

Presented by Alvin Brown and Associates, tax attorney, formerly with the Office of the Chief Counsel of the IRS. 
Call us for all IRS tax issues, problems and emergencies
Protect yourself from IRS intimidation, errors, and penalties.
www.irstaxattorney.com - ab@irstaxattorney.com - (888) 712-7690 - (703) 425-1400